Careful what you wish for

Yesterday at noon, the much anticipated BoE interest rate decision was disclosed, the repercussions of which were completely unexpected. The rate change came in at 0.5%, up from the previous 0.25%. The effect of which was, however, a mirror image of what Euro buyers had hoped. It was a prime example of exactly why you should keep in close contact with us here at Currency Index. The assumption many had, was that interest rates would be hiked and the pound would duly strengthen against other currencies. This did not happen. Seemingly due to dovish projections, with future hikes more gradual and limited than predicted, the pound plummeted. Throughout the afternoon trading session, sterling dropped over two cents against the euro and a cent against USD. It is likely that the pounds prior gains recently were “built-in” on the expectation of more aggressive rate hikes in the future.

Elsewhere in Europe and America

Yesterday morning saw plenty of other data released. Markit Manufacturing, in several euro countries, coming in mostly positively. German unemployment too published better than expected figures. Largely positive euro data, then, caused GBP-EUR to drop over a half-cent in the morning session. The afternoon saw a multitude of eco-stats and a couple of speeches from across the pond. Employment, jobless claims, non-farm productivity and labor costs, all were as expected or better, giving the USD strength. At 12:30, new FOMC chair Jerome Powell spoke and is seen as likely to continue “the Fed’s current policies of gradually raising interest rates”. http://www.bbc.co.uk/news/business-41842445 Due to the positive data, the pound lost another half-cent against the dollar, throughout the afternoon.

Today

It is a strange one for Friday as there is no data from either the eurozone or from the UK. US and Canadian releases dominate with earnings, payroll, labor force, employment and trade balance all under the spotlight.

In addition, Markit services, manufacturing, factory orders and oil data will all have a chance of strengthening the dollar against other majors. From Canada, we have trade and employment data.

Before the weekend

The gains sterling has made over the last couple of weeks, much like Guy Fawkes, have been burnt away and is once again in a position of weakness. If you held off buying euros, expecting rates to further improve, it has cost you over the equivalent of €2000 on a £100k transfer. It may well be prudent to forward book and prevent any further nasty shocks.